U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended December 31, 1995
or
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transmission period from __________ to __________
Commission file number 0-13117
MICROFRAME, INC.
----------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
New Jersey 22-2413505
---------- ----------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
21 Meridian Road, Edison, New Jersey 08820
------------------------------------------------------
(Address of Principal Executive Offices)
(908) 494-4440
---------------------------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
There were 3,717,675 shares of Common Stock outstanding at February 7, 1996.
Transitional Small Business Disclosure Format:
Yes No X
--- ---
<PAGE>
MICROFRAME, INC.
FORM 10-QSB
FOR THE QUARTER ENDED DECEMBER 31, 1995
PART I. FINANCIAL INFORMATION Page
Item 1. Condensed Financial Information 2
Condensed Balance Sheets as of December 31, 1995
and March 31, 1995 (Unaudited) 3
Condensed Statements of Income for the three
months ended December 31, 1995 and December 31, 1994;
nine months ended December 31, 1995 and
December 31, 1994 (Unaudited) 4
Condensed Statements of Cash Flows for the nine
months ended December 31, 1995 and December 31, 1994
(Unaudited) 5
Notes to Condensed Financial Statements 6-8
Item 2. Management's Discussion and Analysis or Plan of Operation 9-11
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K 12
SIGNATURES 13
<PAGE>
PART I. Financial Information
Item 1. CONDENSED FINANCIAL INFORMATION.
The condensed financial statements included herein have been prepared
by the registrant without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Although the registrant believes that the
disclosures are adequate to make the information presented not misleading,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. It is
suggested that these condensed financial statements be read in conjunction with
the financial statements and the notes thereto included in the registrant's
latest Annual Report on Form 10-KSB.
-2-
<PAGE>
MicroFrame, Inc.
Condensed Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
1995 1995
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 30,584 $ 490,261
Accounts receivable, less allowance for doubtful
accounts of $75,000 and $75,000, respectively 1,530,345 1,912,304
Inventory, net 1,489,412 775,540
Deferred tax asset -- 400,000
Prepaid expenses and other current assets 55,061 24,325
------------ ------------
TOTAL CURRENT ASSETS 3,105,402 3,602,430
Property and equipment at cost, net 435,566 317,585
Capitalized software, less accumulated amortization
of $504,829 and $370,879, respectively 325,463 211,602
Security deposits 44,554 31,412
Excess of cost over fair value of net assets acquired, less accumulated
amortization of $3,138 and $0,
respectively 98,472 0
Deferred tax asset 574,000 174,900
------------ ------------
TOTAL ASSETS $ 4,584,357 $ 4,337,929
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings $ 702,965 $ 0
Accounts payable 552,044 354,427
Accrued payroll and related liabilities 126,497 240,900
Deferred income 232,292 202,478
Other current liabilities 134,254 62,730
------------ ------------
TOTAL CURRENT LIABILITIES 1,748,052 860,535
------------ ------------
Stockholders' equity
Common stock - par value $.001 per share; authorized 50,000,000 shares,
issued 3,718,075 shares and outstanding 3,717,675 shares at December
31, 1995; issued 3,687,198 shares
and outstanding 3,686,798 shares at March 31, 1995 3,718 3,687
Preferred stock - par value $10 per share;
authorized 200,000 shares, none issued -- --
Additional paid-in capital 4,856,924 4,769,406
Accumulated deficit (2,020,338) (1,291,699)
------------ ------------
2,840,304 3,481,394
Less - Treasury stock, 400 shares, at cost (4,000) (4,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 2,836,304 3,477,394
------------ ------------
Commitment and contingencies -- --
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,584,357 $ 4,337,929
============ ============
</TABLE>
The accompanying notes are an integral
part of these condensed financial statements
-3-
<PAGE>
MicroFrame, Inc.
Condensed Statements of Income
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
December 31, December 31,
------------ ------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $4,334,057 $5,110,962 $1,727,117 $2,030,319
---------- ---------- ---------- ----------
Costs and expenses
Cost of goods 1,796,623 2,290,145 631,049 969,352
Research and development expenses 440,082 305,411 146,032 104,209
Selling, general and administrative expenses 2,807,906 2,023,734 902,149 775,081
Amortization of excess of cost over fair value
of net assets acquired 3,138 0 2,758 0
---------- ---------- ---------- ----------
TOTAL COSTS AND EXPENSES 5,048,049 4,619,290 1,681,988 1,848,642
Interest income 3,262 6,798 200 3,122
Interest expense (17,910) (229) (16,216) (229)
---------- ---------- ---------- ----------
Income (loss) before income tax provision (728,640) 498,241 29,113 184,570
========== ========== ========== ==========
Income tax provision 0 199,300 0 73,800
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (728,640) $ 298,941 $ 29,113 $ 110,770
========== ========== ========== ==========
Per share
Primary
Net income (loss) per share $ (0.20) $ 0.08 $ 0.01 $ 0.03
---------- ---------- ---------- ----------
Shares used in computation 3,699,178 3,646,242 3,717,885 3,655,131
---------- ---------- ---------- ----------
Fully diluted
Net income (loss) per share $ (0.20) $ 0.08 $ 0.01 $ 0.03
---------- ---------- ---------- ----------
Shares used in computation 3,699,178 3,956,420 3,717,885 3,939,265
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral
part of these condensed financial statements
-4-
<PAGE>
MicroFrame, Inc.
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
(unaudited) Nine months ended
December 31,
------------
1995 1994
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (728,640) $ 298,941
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 243,054 151,440
Deferred tax provision -- 199,300
(Increase) decrease in
Accounts receivable, net 388,862 (621,413)
Inventory (712,412) 362,372
Prepaid expenses and other current assets 16,259 (17,461)
Security deposits (11,492) --
Increase (decrease) in
Accounts payable 167,312 (57,941)
Accrued payroll and related liabilities (118,843) (16,566)
Deferred income 29,814 61,718
Other current liabilities 46,486 (18,098)
------------ ------------
Net cash provided by operating activities (679,600) 342,292
------------ ------------
Cash flows from investing activities
Capital expenditures (442,220) (186,193)
Acquisition of European Business Associates (50,206) --
------------ ------------
Net cash used in investing activities (492,426) (186,193)
------------ ------------
Cash flows from financing activities
Short-term borrowings 702,965 27,433
Insurance of common stock 9,384 3,000
------------ ------------
Repayment of note payable 0 0
------------ ------------
Net cash (used) provided by financing activities 712,349 30,433
------------ ------------
Net (decrease) increase in cash and cash equivalents (459,677) 186,532
Cash and cash equivalents - beginning of period 490,261 505,317
------------ ------------
Cash and cash equivalents - end of period $ 30,584 $ 691,849
============ ============
</TABLE>
The accompanying notes are an integral
part of these condensed financial statements
-5-
<PAGE>
MICROFRAME, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(Unaudited)
NOTE 1 - CONDENSED FINANCIAL STATEMENTS:
The condensed balance sheets as of December 31, 1995 and March 31, 1995, the
condensed statements of operations for the nine month periods ended December 30,
1995 and 1994 and the condensed statements of cash flows for the nine month
periods then ended have been prepared by the Company without audit. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at December 31, 1995 and 1994 have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and notes
thereto as of March 31, 1995 and for the year then ended.
NOTE 2 - INVENTORY:
Inventory consists of the following:
December 31, 1995 March 31, 1995
----------------- --------------
Raw materials $ 817,997 $ 347,962
Work in process 517,023 286,667
Finished goods 154,392 140,911
----------- -----------
Total $ 1,489,412 $ 775,540
=========== ===========
NOTE 3 - STOCKHOLDERS' EQUITY:
During the nine months ended December 31, 1995, stockholders' equity changed for
the following items:
Net income/(loss) of $(728,640)
Issuance of common stock of $87,549
-4-
<PAGE>
MICROFRAME, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(Unaudited)
NOTE 4 - NET INCOME PER SHARE:
The computation of earnings per common and common equivalent share is based upon
the weighted average number of common shares outstanding during the period plus
(in periods in which they have a dilutive effect) the effect of common stock
equivalents, comprised solely of stock options. Fully diluted earnings per share
also reflect additional dilution related to stock options due to the use of the
market price at the end of the period, when higher than the average price for
the period.
NOTE 5 - ACQUISITION OF EUROPEAN BUSINESS ASSOCIATES:
On September 15, 1995, MicroFrame Europe N.V., a newly formed wholly-owned
subsidiary, acquired all of the issued and outstanding shares of capital stock
of European Business Associates BVBA of Brussels, Belgium, a marketing
organization which specializes in creating and managing distribution networks
and OEM relations for suppliers to the telecommunications industry. MicroFrame
Europe N.V. will serve as the Company's European sales and distribution
coordinator as well as provide technical support services for the Company's
authorized European distributors.
The acquisition was accounted for under the purchase method of accounting. The
results of the operations of MicroFrame Europe N.V. are included with the
Company's results of operations from the date of acquisition. The Company issued
cash and common stock valued at $128,125, assumed liabilities of $59,783, and
incurred $35,075 in additional costs related to the acquisition. Total
consideration as allocated to the assets acquired was as follows:
Current assets $ 90,226
Property and equipment 29,497
Other assets 1,650
Goodwill 101,610
-------------
$ 222,983
-5-
<PAGE>
MICROFRAME, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(Unaudited)
The portion of the purchase price allocated to goodwill is being amortized over
a 10-year period beginning September 15, 1995. The following unaudited pro forma
condensed statement of operations information has been prepared to give effect
to the acquisition as if such transaction had occurred at the beginning of the
periods presented. The information presented is not necessarily indicative of
the results of future operations of the total Company.
Nine Months Ended Dec. 31, 1995 Dec. 31, 1994
- ----------------- ------------- -------------
Net revenues $ 4,382,000 $ 5,220,000
Net income (loss) $ (759,000) $ 299,000
Pro forma earnings per share $ (.21) $ .08
-6-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
Revenues for the quarter ended December 31, 1995 were $1,727,117 as
compared with revenues of $2,030,319 for the same quarter of the previous fiscal
year, or a decrease of approximately 14.9 %. The major portion of the revenue
decrease was attributable to decreased shipments to AT&T of Remote Port Security
Devices (RPSDs) for their Definity PBX customers. As a result of an
"overstocked" position determined by AT&T in the quarter ended September 30,
1995, a reduction in purchase order activity was effected. Revenues for the
current quarter ended from AT&T were approximately 65% lower than the same
quarter in the previous year. Exclusive of this component, quarterly revenue
improved slightly (approximately 1%) from the quarter ended December 31, 1994.
In addition, AT&T's purchase order activity resumed in December for regular
monthly quantities of the RPSDs. Two additional significant reductions in the
Company's revenue stream which occurred in the quarter ended September 30, 1995
experienced increases in the quarter ended December 31, 1995. First, revenues
from the Company's largest customer, MCI, increased approximately threefold for
the quarter ended December 31,1995 versus the quarter ended September 30, 1995.
Second, the Company's revenues from international customers increased by
approximately $300,000 in the quarter ended December 31, 1995 versus the quarter
ended September 30,1995. During the quarter ended December 31,1995, the Company
received a large purchase order commitment from Concert Management Services, a
joint venture between MCI Communications and British Telecommunications, on
which initial shipments were made during the quarter.
The Company's cost of goods sold decreased from $969,352 from the
quarter ended December 31, 1994 to $631,049 for the quarter ended December 31,
1995 as a result of decreased shipment levels. However, cost of goods as a
percentage of sales decreased from 47.7% for the previous comparable fiscal
period to 36.5% for this fiscal period, reflecting improved systems, purchasing
procedures and more favorable pricing negotiated with vendors. Research and
development expenses, net of capitalized software development, increased from
$104,209 in the quarter ended December 31, 1994 to $146,032 in the current
fiscal quarter, an increase of 40%. Research and development expenses as a
percentage of sales increased from 5.1% to 8.5%, reflecting increased
development of a next generation set of products to be introduced in the fourth
fiscal quarter. Selling, general and administrative expenses increased from
$775,081 for the prior year's comparable fiscal period to $902,149 for the
fiscal period ending December 31, 1995. This is a result of the Company's
expansion of senior management and its sales and marketing function in
anticipation of future growth, which growth did not materialize in the prior
comparable fiscal period. The Company's selling, general and administrative
expenses decreased by approximately 5% from the quarter ended September 30, 1995
as austerity measures were implemented, including a hiring freeze and temporary
furloughs of approximately 15% of the Company's full-time employees.
-7-
<PAGE>
The Company's operating profit before interest and taxes decreased
from $181,677 during the fiscal quarter ended December 31, 1994 to $45,129 for
the fiscal quarter ended December 31, 1995, as a direct result of the factors
described above.
FIRST NINE MONTHS OF FISCAL 1996 VERSUS FIRST NINE MONTHS OF FISCAL 1995
Revenues for the nine-month period ended December 31, 1995 were
$4,334,057 as compared with revenues of $5,110,962 for the comparable period of
the previous fiscal year, a decrease of approximately 15.2 %. The major portion
of the revenue decrease was attributable to decreased shipments to AT&T of
Remote Port Security Devices (RPSDs) for their Definity PBX customers as
discussed above, as well as a significant revenue shortfall experienced in the
quarter ended September 30, 1995.
While the Company sells a substantial portion of its product to its
top two customers, MCI and AT&T, the customer base exclusive of these two
customers has increased substantially, both in terms of absolute revenues and
percentage of overall revenues. Revenues excluding these top two customers for
the nine months ended December 31, 1995 increased by approximately $625,000
(33%) over the nine months ended December 31,1994, while the percentage of
overall revenue from all other customers increased from approximately 38% in the
nine months ended December 31, 1994 to approximately 58% in the nine months
ended December 31, 1995.
The Company's cost of goods sold decreased from $2,290,145 from the
nine months ended December 31, 1994 to $1,796,923 for the quarter ended December
31, 1995 as a result of decreased shipment levels. Despite the lower volume,
cost of goods as a percentage of sales decreased from 44.8% for the previous
comparable fiscal period to 41.5% for the current fiscal period , due to the
favorable factors noted previously. Research and development expenses, net of
capitalized software development, increased from $305,411 for the period ended
December 31, 1994 to $440,082 in the current fiscal period, an increase of 44%.
Research and development expenses as a percentage of sales increased from 6.0%
to 10.2%, reflecting an increased commitment to the development of a next
generation set of products. Selling, general and administrative expenses
increased from $2,023,274 for the prior year's comparable fiscal period to
$2,807,906 for the fiscal period ending December 31, 1995. This is a result of
the Company's expansion of senior management and its sales and marketing
function in anticipation of future growth, which growth did not materialize in
the prior comparable fiscal period.
The Company's operating profit before interest and taxes decreased
from $491,672 during the nine months ended December 31, 1994 to an operating
loss before interest and taxes of $713,992 for the nine month period ended
December 31, 1995. This decrease was due to the Company's slow sales growth and
the increase in operating costs which were in anticipation of more rapid growth.
-8-
<PAGE>
FINANCIAL CONDITION AND CAPITAL RESOURCES
During the third quarter of fiscal year 1996, the Company's financial
condition remained steady with the previous quarter ended September 30, 1995.
After a significant drop in working capital from $2,341,895 at March 31, 1995 to
$1,351,578 at September 30, 1995, the working capital remained level at
$1,357,349 at December 31, 1995. A much tighter focus on working capital
management was instituted as the Company stabilized its financial condition
after the decline in the quarter ended September 30, 1995.
The Company has a credit agreement with CoreStates Bank
("CoreStates") for a credit line of $1,000,000 to finance future working capital
requirements, collateralized by accounts receivable, inventory, equipment and
all other assets of the Company, as well as a $200,000 credit facility to
finance purchases of machinery and equipment, convertible into a three-year
secured term loan when utilized. As of December 31, 1995, the Company has
$582,000 outstanding on its credit line and there is a current term loan of
$120,965 outstanding under the credit facility.
As a result of its stabilized working capital position and its line
of credit with CoreStates, the Company believes that it will have sufficient
capital to meet its financial requirements for the remainder of the fiscal year.
-9-
<PAGE>
PART II. Other Information
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
None.
-10-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: February 8, 1996
MICROFRAME, INC.
/s/ Lonnie L. Sciambi
--------------------------------
Lonnie L. Sciambi, President and
Chief Executive Officer
/s/ Mark A. Simmons
--------------------------------
Mark A. Simmons, Chief Financial Officer
(Principal Financial Officer)
-11-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<NAME> MICROFRAME, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 30,584
<SECURITIES> 0
<RECEIVABLES> 1,605,345
<ALLOWANCES> (70,000)
<INVENTORY> 1,489,412
<CURRENT-ASSETS> 3,105,402
<PP&E> 943,521
<DEPRECIATION> (507,955)
<TOTAL-ASSETS> 4,584,357
<CURRENT-LIABILITIES> 1,748,052
<BONDS> 0
0
0
<COMMON> 3,718
<OTHER-SE> 2,832,586
<TOTAL-LIABILITY-AND-EQUITY> 4,584,357
<SALES> 1,727,117
<TOTAL-REVENUES> 1,727,117
<CGS> 631,049
<TOTAL-COSTS> 1,681,988
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,216
<INCOME-PRETAX> 29,113
<INCOME-TAX> 0
<INCOME-CONTINUING> 29,113
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,113
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
